Davey v. Newell-Morse Royalty Co.
| Decision Date | 03 March 1913 |
| Parties | THOMAS N. DAVEY, Defendant in Error, v. NEWELL-MORSE ROYALTY COMPANY, Plaintiff in Error |
| Court | Missouri Court of Appeals |
Error to Jasper Circuit Court, Division Number Two.--Hon. D. E Blair, Judge.
AFFIRMED.
Judgment affirmed.
Roy Hockensmith, Norman A. Cox, and Hugh Dabbs for defendant in error.
(1) A corporation is liable in damage to a bona fide purchaser or pledgee of an over-issue or fictitious certificates of stock if they were issued by an officer or agent under authority from the corporation or its managing officers, or by an officer or agent clothed with apparent authority, although his act may have been in fact unauthorized and fraudulent; or if their issue and the consequent injury were the result of negligence on the part of the corporation or its managing officers. Railroad v. Bank, 56 Ohio St. 351, 43 L R. A. 783; Tome v. Railroad, 36 Md. 36, 17 Am. Rep. 540; Railroad v. Bank, 60 Md. 36; Havens v. Bank, 133 N.C. 214, 95 Am. St. Rep. 627; Titus v. Turnpike Road, 61 N.Y. 237; Railroad v. Schuyler, 34 N.Y. 30; Allen v. Railroad, 150 Mass. 200, 15 Am. St. Rep. 186; Jarvis v. Beach Co., 148 N.Y. 652, 31 L. R. A. 778; Bank v. Railroad, 137 N.Y. 231, 19 L. R. A. 335; Land Co. v. Parker, 87 Am. St. Rep. (Wis.) 845; Land Co. v. Hildebrandt, 79 N.W. 753; Watson v. Printing Co., 56 Mo.App. 153; Thompson on Corporations, secs. 1500-1501; Colbrook on Collateral Securities, sec. 314; Clark & Marshall on Corporations, secs. 428 to 433 inclusive; Cook on Corporations, (6 Ed.), sec. 293; Purdy's Beach on Corporations (last Ed.), secs. 279-280. (2) Purchasers, or parties receiving stock as security for a loan, are not bound to look beyond the certificate itself, nor to examine the books of the corporation to ascertain whether the stock has been issued according to law. This is the duty of the corporation and its officers. Railroad v. Bank, 43 L. R. A. 784; Titus v. Turnpike Co., 61 N.Y. 243; Jarvis v. Beach Co., 31 L. R. A. 778; Allen v. Railroad, 15 Am. St. 191; Trust Co. v. Glass Co., 213 Pa. St. 307, 5 Am. and Eng. Ann. Cas. 250; Morawitz on Corporations, sec. 185; Land Co. v. Parker, 87 Am. St. 845; Trust Co. v. Lumber Co., 118 Mo. 454; Havens v. Bank, 95 Am. St. 637, also authorities under point 1. (3) The liability of the corporation for the issue of stock in excess of its authorized capital stock is the same whether the issue is made unlawful by the common law, the statute of the State or prohibited by the Constitution. Thompson on Corporations, secs. 1490-1493; Purdy's Beach on Private Corporations (last Ed.), sec. 283; Railroad v. Schuyler, 34 N. Y. (App.) 50; Land Co. v. Parker, 87 Am. St. 845; Allen v. Railroad, 15 Am. St. 185; Cook on Corporations (6 Ed.), secs. 292-3; see also authorities cited under point 1. (4) A certificate of stock in a corporation is a continuing affirmation by the corporation, that the person to whom issued is the owner of the shares therein named. It partakes to a great extent of the qualities of a negotiable security and may be transferred by delivery and indorsement, authorizing the person to whom transferred to have the transfer made on the books of the company. Keller v. Machine Co., 43 Mo.App. 87; Trust & Savings Co. v. Lumber Co., 118 Mo. 458; Havens v. Bank, 95 Am. St. 635; Bank v. Lanier, 11 Wall. (U.S.) 369; Dain Mfg. Co. v. Seed Co., 95 Mo.App. 144; O'Brien v. Cummings, 13 Mo.App. 199. (5) In the absence of evidence of the actual value of the stock, where the entire capital stock is paid up, the law presumes its market value to be its par value. Trust & Savings Co. v. Lumber Co., 118 Mo. 461; Hewitt v. Steele, 118 Mo. 474.
Thomas & Hackney for plaintiff in error.
(1) The court erred in overruling the defendant's declaration of law No. 1, in the nature of a demurrer to the evidence. Under the pleadings and evidence the defendant was not liable for the fraud of Newell in illegally issuing to himself the spurious certificate of stock. This stock had never been thrown on the market. Plaintiff admitted that the certificate was taken out of the book and delivered to him in the company's office at the time the loan was made. The plaintiff was not dealing with the defendant corporation. He was dealing with Newell in his individual capacity. He relied on Newell's individual representations. He placed confidence in Newell. He was deceived and defrauded by Newell. The certificate was entirely in the handwriting of Newell except the signature of president, and the certificate being newly issued and so long after the organization of the corporation the plaintiff must have known at the time of making the loan that Newell could acquire the stock only by a transfer on the books. These facts bring the case squarely within the rule of the following authorities which hold that the corporation is not liable for damages. Farrington v. Railroad, 150 Mass. 406, 5 L. R. A. 849; Moores v. Bank, 111 U.S. 156; 1 Cook on Corp. (6 Ed.), p. 805 (4 Ed.), p. 571; 10 Cyc., p. 445; 2 Thomp. on Corp., sec. 1499; Whitfield v. Copper Co., 123 P. 1078-1080; Lee v. Smith, 84 Mo. 304; Bank v. Edwards, 243 Mo. 553, 147 S.W. 978. (2) One who accepts newly issued certificates of stock from an officer of a corporation, who has authority from the corporation to sign and seal and issue for the corporation certificates of its stock, as collateral security for a personal loan made to the officer is bound to inquire whether the officer had authority to issue certificates for the purpose intended, but if he does not make such inquiry and the officer in fact issues them in fraud on the rights of the corporation, he takes them subject to those rights. 2 Thompson on Corp., sec. 2606; cases cited under point 1. (3) The court erred in refusing declarations of law Nos. 2, 3 and 4 asked by defendant. Under Sec. 8, Art. 2 of the Constitution of the State of Missouri, the certificate was absolutely null and void, having been issued in excess of the authorized capital stock of the defendant company, and Newell not having power under the Constitution to issue said certificate did not have the power to put the same in circulation, and any frauds committed by him, or any representations made by him with respect to the stock, were not binding on the defendant. (4) The court erred in refusing declarations of law numbered 6, 7, 8, 9 and 10 asked by the defendant. These declarations of law were all predicated on the fact that the plaintiff made the loan to Newell knowing the same to be for his private use and on his private account, and not for the benefit nor on behalf of the defendant company; and the plaintiff, in thus dealing with Newell individually was required to make reasonable investigation and inquiry as to whether or not the certificate issued in Newell's name was valid. See authorities cited under point 1.
--Plaintiff recovered judgment against the defendant for the sum of $ 3445, and it is alleged in his petition in substance that the defendant was incorporated under the laws of the State of Missouri, June 22, 1905; that its principal business office was at Carthage, Missouri; that one S. F. B. Morse was the president of defendant company from that date until February 17, 1910; that J. P. Newell was during all that time its secretary and H. W. Blair its vice-president; that the capital stock of said corporation authorized by law and its articles of incorporation was $ 250,000, divided into 2500 shares of the par value of $ 100 each, and that the full amount thereof was actually subscribed and issued at the time of the incorporation; that Newell was one of the stockholders therein and had a majority of stock issued in his own name, attested by the seal of the corporation and signed by the president; that Newell was negligently and carelessly permitted by the board of directors of the corporation and the president and vice president thereof, without supervision, investigation or direction on the part of the board of directors, or its officers, to have full charge of the business of said corporation and the issuing of its certificates of stock; that the capital stock of said corporation had never been increased; that the officers and board of directors of the corporation negligently and carelessly failed to keep books and records and record therein the amount of the capital stock subscribed, the names of the owners and the amount held by them respectively, the amount of money paid and by whom paid, the transfer of said stock and to whom transferred, the amount of its assets and liabilities, and the names and places of residence of its officers, the only record of the corporation being the stub and stock book in which the stock was bound; that the officers and directors failed to investigate and examine the acts and official conduct of its secretary in the management of its business, and failed to examine the record of the issuance, transfer, return and cancellation of its stock, and negligently and carelessly permitted the said secretary to have complete charge of the management of the business of said corporation as aforesaid, without any examination thereof on the part of the board of directors and the officers, and negligently and carelessly permitted the secretary from time to time to take the stock book of said corporation, in which the blank certificates of stock were bound with the seal thereto attached, to the State of New York for the president to sign up the certificates of stock ahead of the transfer thereof and in anticipation of such transfer and in blank; and negligently and carelessly permitted the said secretary to deal, act and control the same after being so signed and issued at his discretion; that the board of directors permitted...
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